LetticiaGarcia, an aggressive bondinvestor, is currently thinking about investing in a foreign(non-dollar-denominated) government bond. Inparticular, she's looking at a Swiss government bond that matures in 15 years and carries a coupon of 9.95%. The bond has a par value of 12,000 Swiss francs(CHF) and is currently trading at 110.78 (i.e., at 110.78% ofpar).

Letticia plans to hold the bond for a period of 1year, at which time she thinks it will be trading at 121.72she's anticipating a sharp decline in Swiss interestrates, which explains why she expects bond prices to move up. The current exchange rate is 1.57 CHF/U.S.$, but she expects that to fall to 1.24 CHF/U.S.$. Use the foreign investment total return formula to find the following information.

a. Ignoring the currencyeffect, find thebond's total return(in its localcurrency).

b. Now find the total return on this bond in U.S. dollars. Did currency exchange rates affect the return in anyway? Do you think this bond would make a goodinvestment? Explain